Rethinking Finance

Over at BloggingStocks, Peter Cohan offers a radically rational way to begin thinking about how to trim Wall Street’s power and restore some rationality to our financial system. In it he references one of the few things I have ever agreed with Paul Krugman on, in Krugman’s argument that the current economic crisis “represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good”.

It is going to take a long time for good solutions to emerge. And I suspect there will be little that I will agree with Krugman on regarding actual solutions to the core problem in the financial system that he correctly identifies.

The deeper question is not just one of recrafting the rules of the finance game, but rethinking the whole question of scale throughout our society. Giant government facing giant problems naturally looks for giant players to offer giant solutions within the framework of giant regulatory systems.

The fundamental problem is all those giants. Until both the questions and solutions get reframed at the level which local communities can impact them more directly, so called “solutions ” will likely exacerbate the core problems.

The question of scale goes well beyond the finance industry. The concentration of wealth and power in all sectors of our society is fundamentally undermining our democracy and our economy.  “Efficiencies of scale” in the private and public sectors are an outdated legacy of the industrial revolution.  In the information and communication age, the huge scale with which we currently address all questions creates gross distortion, corruption and inefficiencies throughout our entire society .

The questions of scale and its consequences are at the core of most problems in our society.  Answers to those questions won’t come easily.

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Filed under Economic Policy, Fundamental Perspectives

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